Earlier this month (March 2021), the Biden administration announced full relief of $1 billion of loans to over 70,000 students who had been defrauded by for-profit colleges in the U.S.
Students who had been defrauded by their colleges, are now to receive tax-free forgiveness from their loans. Approximately 72,000 students, who had been scammed by for-profit education companies and colleges, would benefit under the new plan from the Biden administration.
Over the last decade, investigations into fraudulent behaviour related to federal loans had been carried out and concluded in favour of defrauded students.
Corinthian Colleges, a for-profit post-secondary education company with over 100 college campuses, was at the forefront of most of the investigations. In 2014, the Consumer Financial Protection Bureau finalised their report and accused the company of illegal activity which mainly consisted of collecting high-interest private loans from their students.
For-profit schools typically market their education towards students desperate to jump the career ladder, paying extortionate prices for substandard classes. Graduates are left with significant amounts of debts when they are unable to get into high paying jobs and find themselves unable to pay off their loans in the allotted time.
Under Obama’s Administration, students who had been defrauded by for-profit colleges were able to receive complete loan relief from the year of 2015. This was eventually adjusted by Trump’s Education Secretary, Betsy DeVos, so that the process for borrowers to get any form of relief was extremely difficult.
Although payments of federal student loans had been suspended by Trump’s administration in the latter half of 2020 following the economic impact of the COVID-19 pandemic, Biden’s decision to fully cancel payments is a step in the right direction for struggling students and graduates.
The conversation surrounding student debt was at the centre of Biden’s 2020 Presidential campaign as he planned to write off a sizeable amount of it. Trump, on the other hand, was offering an extension of the loan payment suspension with the assumption that payments would restart after the pandemic.
Students will now have both their loans cancelled and will be reimbursed for any previous payments. In the long run, credit reports related to these loans would not have a negative impact on the borrowers’ credit scores. This, of course, will have a substantially positive effect on individuals who had been struggling to pay off loans and will hopefully give them more clarity on their future.